James Treacy – Irish Independent - 03rd January 2014
Back in March last year 'StubbsGazette', in association with Red C, conducted the most comprehensive survey to date of the state of personal insolvency in Ireland.
We found that nearly a quarter of a million households qualified for one of the three schemes on offer under the provisions of the new Personal Insolvency Act. Our estimate of close to 25,000 applicants in the first year of operations (which at this point would approximately equate to calendar year 2014) was considerably ahead of Minister Alan Shatter's own estimate of some 18,000.
But nowhere were our findings so stark as our projections in relation to bankruptcy where we forecast some 6,900 bankruptcies over the same period -- this coming off a base of just 143 bankruptcies in Ireland in 2013.
Ireland's historically tiny level of bankruptcies in relation to its size has predominantly been down to the draconian nature of our bankruptcy laws, in particular its 12-year discharge period. Since December, however, Ireland relaxed its bankruptcy regime considerably with the discharge period now reduced to three years. Furthermore, the costs of applying for bankruptcy have plummeted: where the cost in many cases was once in excess of €10,000, this has dropped to around €1,500.
It was the harsh state of affairs in relation to bankruptcy laws that led to increasing numbers of Irish people seeking to go bankrupt in the more accommodating UK system, a phenomenon that has come under considerable scrutiny.
We anticipate that the increased resistance of the UK authorities to bankruptcy 'tourism' will shut down this avenue to a large degree as applicants fail to present a credible case of the UK as their 'centre of main economic interest'.
Another factor set to light the touchpaper on bankruptcy levels is the sheer scale of personal debt in tandem with diminished or disappearing levels of income.
Anecdotal evidence (and indeed our own experience as a debt collections agency) indicates that many individuals, particularly those in the (lower) DE socio-economic group, will simply have no disposable income in excess of the minimum subsistence income levels with which to make a meaningful (or acceptable, from a creditor point of view) payment on their debts.
We know from the UK experience of their Individual Voluntary Arrangement (IVA) regime that banks there will not accept a net realisation on unsecured debts of less than 30-40pc. If the same baseline were to be applied in the case of the Irish equivalent Debt Settlement Arrangement in the case of unsecured debt of €40,000 over five years, this would mandate a payment of up to €250 per month -- something beyond the ability of many.
In truth, the new personal insolvency regime has got off to a slow start. This was never going to be easy but the challenge for the Insolvency Service of Ireland (ISI) of building an adequate infrastructure in little over a year, combined with a natural reticence on the part of debtors and personal insolvency practitioners (PIPs) to stick their necks out into the unknown, has meant a muted beginning.
Furthermore, it is clear that the process of applying for and succeeding in obtaining a protective certificate is onerous and involved. Very many debtors are already mentally exhausted from grappling with the day-to-day reality of indebtedness and lack the appetite for a scrupulous six-year arrangement. Those at the margin, therefore, may choose to draw a line under the past through a bankruptcy application.
What seems clear is that for Ireland to draw a similar line under its recent inglorious past will require a large degree of compromise on the part of all interested parties -- debtors, creditors, PIPs and others -- not least the taxpayer.
There are always hard cases that resolutely use all means in their power to evade their obligations but there needs also to be an acceptance that for many, the situation is hopeless outside of formal intervention through insolvency arrangements or bankruptcy.
The situation calls for joined-up thinking, dialogue and a non-adversarial environment so all parties can work together to put this sad chapter behind us.
JAMES TREACY IS MANAGING DIRECTOR OF STUBBSGAZETTE